Elders Drums Up Appetite With Sale Launch

By Caroline Henshaw

Elders Ltd. may be hoping to whet the appetite of more agricultural investors as it starts the sale of its largest business division.

On Monday, the Australian agricultural-services company released a brief statement to the exchange saying that it will begin a sales process for its main Rural Services business “as part of an accelerated strategy to return value to stakeholders.”

RBS Morgans analyst Belinda Moore estimated that the division, which forms the backbone of the diversified agribusiness group, could be sold for a price tag of between 324 million Australian dollars (US$335 million) and A$243 million, based on multiples achieved in similar recent deals of between six and nine times.

She argues that Elders’ board may be starting the sale process in a bid to drum up more interest from international companies, after rejecting an unsolicited merger proposal from rival Ruralco earlier this month. Australia’s largest farm services company, Landmark, was bought by Canadian giant Agrium Inc. as part of its A$1.2 billion acquisition of AWB in 2010.

“The [Elders] board may be taking the view that some of the parts are worth more than the whole,” Ms. Moore told The Wall St Journal. “It looks like they’re trying to get the highest price possible for the business. This is essentially most of the business.”

Elders Chief Executive Malcolm Jackman said the board had taken the decision to sell the business as a means of “taking charge” of the future of the company, and he expects plenty of interest from international buyers when the indicative proposals come through, which he expects to be early next year.

Shares in Elders slumped 4% to a low of 24 cents on the news. That’s down from a peak of A$28.30 in June 2007, at the height of Elders’ success. Ruralco Managing Director John Maher couldn’t immediately be reached for comment.

Ruralco Managing Director John Maher described Elders’ decision as “disappointing” and “unlikely to create any shareholder value” in a statement to the exchange—something he would care about given that Ruralco is Elders’ largest shareholder with a12% stake. Still, he indicated the company would be bidding in order to “ generate material synergies from an acquisition of Elders Rural Services.”

Australian agriculture has become an appetising prospect for some of the world’s largest farm companies as they look to cash in on its growing role as a breadbasket for Asia’s growing middle class. Earlier this month, U.S. agribusiness giant Archer Daniels Midland Co. launched a A$2.7 billion takeover of Australian grain merchant GrainCorp. Ltd., the country’s last listed grain handler of any substantial size.

One spanner in the works for Elders, however, could be the high levels of debt it still holds on its books as a legacy of its ill-fated boom-time expansion.

Ms. Moore estimated that the company will report in excess of A$300 million of debt at its results next month, along with a further A$145 million of hybrid securities, which could complicate any selling process. Combined, that’s almost four times Elders’ market value of A$114.4 million.

According to the letter sent to Elders by Ruralco chairman Richard England this month, a merger between the companies’ rural services divisions would “stabilize” debt and help restore value to Elder’s shareholders, who have seen their shares lose 99% of their value from their 2007 peaks.

Mr. Jackman told The Wall Street Journal at the time the offer was “conceptual in nature, and lacked any real detail, so it was impossible to evaluate it.”

Mr. Jackman declined to comment on Elders’ debt levels ahead of its results, but said the company’s financiers were “supportive” of the board’s decision to sell.

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